Aggregation and small farm commercialisation by promoting FPOs (farmer producer organisations) can be a feasible option for more than 85 per cent of small landholders in India. It can enhance their bargaining power in every possible ‘node’ of the value chain.
FPOs fall into several legal categories, ranging from Section 8 companies, to societies, trusts, cooperatives, and Farmer Producer Companies (FPCs). But two types of legally registered FPOs are typically in vogue — FPCs and cooperatives.
The 2019 Budget announced the setting up of 10,000 FPOs covering more than one crore of small landholders by 2023-24 with a provision of ₹4,496 crore. The challenge is to effectively utilise this allocation and propel FPOs by infusing entrepreneurial spirit and also making them viable and sustainable business entities.
For FPOs, legal changes can be enacted for course correction, but the need for enhancing smallholders’ incomes, livelihoods promotion, and welfare is paramount.
Therefore, FPOs’ outward orientation through aggregation and commercialisation is necessary. In other words, capacity building or mobilising more smallholders into the group may not strengthen FPOs’ outward orientation for finance and market access.
Also, the limited membership base (of different sizes ranging from 50-1,000 farmers), lack of capacity to raise equity capital and institutional credit, policy perils, and the limited capability to invest in secondary agriculture tend to do not allow economies of scale and scope for FPOs.
Why marketplace
Linking FPOs with the marketplace can be a viable proposition to overcome some of these challenges in the face of technology disruption. In the marketplace, FPOs can be linked with the suppliers for agri inputs, farm mechanisation equipment, machinery implements, and services such as warehousing and storage, and with the buyers for selling produce. However, business houses and bulk buyers in the agricultural sector are far away from the FPOs and do not have a clear understanding of their mode of operations.
This gap in understanding, the needs and challenges of FPOs have resulted in the market players’ reluctance to engage with the FPOs directly. Instead, they conduct businesses through stockists, preferred dealers, or key retail outlet management.
The spatial void for the producers and buyers to meet and understand each others’ requirements seems to be a continued impediment. While commercial banks continue to be sceptical of financing FPOs, a few specialised lending institutions such as NABKISAN and Samunnati are active in providing working capital and term loans to FPOs.
The marketplace aims to provide a variety of opportunities and scope to FPOs and stakeholders in the agricultural value chains. First, it can enable an active dialogue between the FPOs and buyers.
Second, the marketplace can establish forward and backward linkages that will yield avenues for business development and expansion for FPOs.
Third, FPOs can acquire real-time information and directly access financial services (peer-to-peer lending mechanisms) and schemes from banks, NBFCs, and insurance companies.
Fourth, marketplace literacy of FPOs can help generate awareness of government policies and schemes for member producers of FPOs. It can also bridge the information/knowledge gaps through sharing experiences and partnership models. e-Kutir’s participatory video is a case in point.
Fifth, marketplace or/and digital literacy of FPOs can enhance the confidence of market players and service providers for transacting business with FPOs.
Staged execution
FPO consortiums initiated in several States can organise FPOs marketplace conclaves through digital platforms utilising the funds allocated.
* Market Expo — Booths or stalls of service providers can showcase and market products and services for Board members and promoters of FPOs to assess their value propositions for fostering linkages.
* FPO Resource Book — A compendium of FPOs in the States concerned can cover a page on each FPO capturing their key features, business activities, membership, equity base, revenues, expenses, etc., and some qualitative information on partnerships with agri-tech entities, market linkages, etc. FPOs registered for joining the FPO marketplace can be included in the compendium. It can be used as a reference by the participating players to review the status of FPOs and approach them, aligning their expectations. This document can also be helpful for Cluster-Based Business Organisations and National Project Management Agency under the aegis of SFAC as a resource for disseminating information about FPOs post-marketplace conclave.
* Business centre for meetings — The conclave venue can chalk a dedicated area for discussions between FPOs and other stakeholders to discuss potential for partnerships and scaling up.
* Recruitment of professionals — Organisational structure plays a crucial role in the business model innovation of FPOs, and therefore, professionals need to be hired to manage FPOs. Governance can be overseen by the shareholders and board of directors elected through the voting process.
* The SFAC empanelled platform service providers can extend the support for FPOs’ marketplace linkage promotion and development.
Dey is Chairman of CFAM, IIM Lucknow. Inputs by Indranil Mazumdar, Manager of Access Development Services. Views expressed are personal